Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Total revenue will increase significantly.
B
Total revenue will decrease significantly.
C
Total revenue will remain unchanged.
D
Total revenue will initially increase and then decrease.
Understanding the Answer
Let's break down why this is correct
Answer
When a firm lowers the price of a product in the elastic range of its demand curve, total revenue is expected to increase. This happens because in this range, consumers are very responsive to price changes; a decrease in price leads to a proportionally larger increase in the quantity demanded. For example, if a coffee shop reduces the price of a cup of coffee from $3 to $2, and as a result, sells many more cups than before, the total money made from sales will rise despite the lower price. Essentially, because people want to buy more of the product when it's cheaper, the firm ends up making more overall. Therefore, lowering the price in the elastic range usually benefits the firm by boosting total revenue.
Detailed Explanation
When the price goes down in the elastic range, more people want to buy the product. Other options are incorrect because Some might think lowering the price always hurts revenue; This idea suggests that price changes don't matter.
Key Concepts
Price Elasticity of Demand
Total Revenue
Monopolistic Competition
Topic
Price Elasticity and Revenue
Difficulty
easy level question
Cognitive Level
understand
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